Will Middle-Class Americans Be Able to Retire?

In a recent survey, nearly 6 in 10 Americans say that their top day-to-day financial concern is “paying the monthly bills,” an increase from 5 in 10 in 2012.

Saving for retirement ranks a distant second place, with 13% calling it a “priority,” as four in ten middle class Americans (42%) say saving and paying the bills is “not possible.” As a result, 48% are not confident they will be able to save enough for a comfortable retirement, and 34% of the middle class say they will work until they are “at least 80” because they will not have saved enough for retirement, up from 25% in 2011 and 30% in 2012.

The plan effect

According to the study, about half of the middle class between the ages of 25 and 75 say they are “confident” they will have enough saved for their retirement. However, less than a third (29%) say they have a written plan for their retirement. For those who have a written plan, 70% describe themselves as “confident” in their future retirement versus 44% who do not have a plan.

9 in 10 middle class Americans who have a plan for their finances in retirement agree that they have “will-power” to save for retirement versus 75% of those who do not have a plan.

Thirty-one percent of Americans in prime retirement saving years – 40 to 59 – say they have a plan, versus 69% percent who do not. Both groups in this age range say they will need a median nest egg of $200,000 for their retirement. However, people who attest to having a written plan say they have saved $63,000, or 32% of their goal. Those without a written plan have only saved $20,000, or 10% of their goal.

The Lack of a Retirement Plan

A plurality of middle class Americans without a written plan for retirement (45%) attribute having “so few financial assets” as the reason they don’t have a plan for retirement. According to a June 2013 U.S. Census report, the median household income is $52,100.

A quarter of middle class Americans who earn between $25,000 and $50,000, have a written plan for retirement. The proportion that has a plan rises slightly to 29% for those with household income between $50,000 and $100,000.

However, having more income does not necessarily translate to having saved more as a percentage of the overall retirement goal. The middle class has saved between 5% and 8% of their overall savings goal, regardless of their income.

A third of all middle class Americans say Social Security will be their “primary” source of income in retirement. Nearly half (48%) of those making less than $50,000 say Social Security is going to be their “primary source” of income in retirement, versus 25% who make more than $50,000.

Forty percent of the middle class say “a large unexpected healthcare expense” is their greatest fear in retirement, however a similar level, 37% of the middle class, say the “loss or diminishment of Social Security” is their greatest financial fear. This fear is heightened for women, almost half of whom (46%) say their number one financial fear in retirement is a loss or diminishment of Social Security.

Fear of Investing in Stocks

The study shows that across middle class members of all generations, from the silent generation to the millennials, only 24% are confident in the stock market as a place to invest for retirement, while 45% of the middle class say “the stock market doesn’t benefit people like me.”

About half (52%) say they don’t invest in the stock market because “I am afraid to lose my nest egg in the ups and downs of the market.”

The apprehension about the market is stronger for those age 25 to 29, with 56% expressing fear of losing their nest egg. When asked if given $5,000 for retirement where they would invest, 58% of those age 25 to 29 say they would invest in a savings account/CD. Confidence in the stock market differs by gender. In contrast to past research, women seem to be less fearful than men: 46% of middle class women express fear of losing their nest egg in the stock market versus 58% of middle class men.

Perhaps enhancing investor fear is the fact that middle class investors have no desire to learn more: 51% say they have “little interest in learning about investing” and this percentage is up to 60% for middle class Americans in their 50s and 60s.

The 30s group understand implications

The survey looks at retirement preparation through the eyes of people in the 20s through the 60s and retired. The generation that seems to have the most realistic overall outlook for retirement is the group in their 30s.

Thirty-somethings who have access to a 401(k) or equivalent plan are currently saving a median of 6% of their income, 1 percentage point more than those in their 20s and 40s, and they estimate needing a median of $500,000 for retirement, the highest estimate of all the age groups surveyed.

In addition, more than a third (34%) of those in their 30s has a written retirement plan, the highest response rate among all the age groups surveyed. Also, these plans are detailed in that they are most likely to include a budget and healthcare cost estimates.

Thirty percent of middle class Americans in their 30s have confidence in the stock market as a place to invest for retirement, the highest confidence level among all the age groups surveyed, while only a third of women in their 30s (the smallest percentage of all surveyed) say they won’t invest due to fear of losing their nest egg in the “ups and downs” of the market.

BLM Implication

On a whole, the outlook for Americans show that there is fear as well as apathy of investments, perhaps due to uncertainties or poor financial education. While knowledge is power, fear and a poor economy outlook can heighten a perception of risk that is greater than the actual risk itself. This robs most individuals from stepping into a critical area of their lives. More has to be done to bring them on board on investment and understanding how an entire economy can be crippled just by relying on handouts.

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